Be the Spark!

contribute now

Housing Ripples

AIR DATE: Monday, March 31st 2008
Download the mp3 for this show.

If a house price fall in the Pacific Northwest, who hears it?

LISTEN TO "Housing Ripples" (24MB MP3)

Portlanders can no longer consider themselves isolated from the housing woes the rest of our state has been feeling for some time. The Case-Shiller index, a housing market indicator, showed this week that home values in the Portland area dropped one half of one percent for two consecutive months. Before that, Portland and Seattle were among the only cities in the country where the housing market remained stable.

Residents of central, southern and eastern Oregon know from experience that when people hesitate to buy homes, it's not just realtors who feel the crunch. A manufactured-housing plant announced to city officials in Silverton earlier this week that they would be closing their doors by the end of May, leaving 160 people unemployed. In La Grande and Elgin, mill workers are working fewer hours, hoping their employer will be able to ride out the current slowdown.

Are you concerned about the value of your home or the stability of your job? Are rising rents making you think for the first time about becoming a homeowner? What are the ripple effects of the housing slump in your life?

Image credit: DryIcons / Flickr / Creative Commons

GUESTS:

 

 

Tagged as: lumber · real estate · recession · sub-prime

You statements are somewhat inaccurate. First, you note that Portland was one of two that remained "stable." Have you looked at the Case-Shiller curves? That huge bubble that developed in the past five years isn't stability. That's volatility. Stability would be flat or perhaps a gradual slope up or down. Second, you left out Charlotte, NC. It is the only market that can claim an appreciation, and if you look at the Case-Shiller date, it's a market that didn't go through a bubble.

What we're seeing is a correction from a speculative bubble. It's a misnomer to call it a decline in values when that "value" was not based on tangible factors.
HomeBuyer —
Homebuyer,

Points well taken. I'll ask our guests about the stability vs. volatility question (in particular: if a decline is a decline, or if there really is something different about a decline that follows a "speculative bubble"), and I've changed the wording to show that Portland and Seattle weren't alone.

Thanks,
Dave
David Miller —
Hi, Could your show please take a little time to address the elephant sitting in the living room concerning the "housing crisis"? This ten percent drop in housing values is nothing compared to the run up in housing values that has preceded it in the last decade or so. It was great that so many homeowners were rolling in the clover over their newfound wealth as the value of their house skyrocketed. It dovetailed in well with the whole Republican "I Got Mine, Screw You" mentality. Too bad for all those poor suckers who were not in the housing market before the great price run up feeding frenzy. So many first time home buyers were faced with the choice of buying a house that was way out of their price range or buying nothing at all. All that time being told that if we did not take these bad terms on this overpriced real estate there would soon be nothing left at all to buy. In general, the value of housing is still way overpriced relative to the percentage of peoples incomes and in a situation like that, forclosures and defaults are inevitable. Thank you, Snyder Harr
Snyder Harr —
Prices in Portland got way out of line with incomes. Historically, the median price home was about 3 to 3.5X the median income. Median family income in Portland is about $60K now whereas the median home price is close to $300K making the price to income ratio close to 5X. For the sake of first time buyers both now and in the future, prices need to come down closer to the low $200K range in order to restore affordability. It looks like that process has started here in Portland. In the longrun this correction will be a very good thing for most of us - and I say this as a homeowner.
skeptictank —
Just to clarify my comments: as a homeowner who bought long ago it really doesn't matter to me if my home drops in value as long as all of the other homes in the same market are dropping at the same rate. I don't look at my house as a piggy bank: I would never get a HELOC or borrow against equity in my house. Also, I need to live somewhere: if I sell my house and buy another in the same market it's really a wash.

Falling prices can actually help homeowners if that translates to lower property taxes... though I suspect that the counties won't be quick to adjust property taxes downward.
skeptictank —
Portland Community Land Trust is a nonprofit organization that provides a viable alternative for moderate-income households locked out of the current market. Even if home values continue to decline, it is unlikely that values will decline to a point that homeownership becomes affordable for households earning less than Portland's Area Median Income (AMI; which is $63,800 for a 4 person household). This is where Portland Community Land Trust comes in. PCLT provides affordable homeownership opportunities for first-time homebuyers earning up to 80% of Portland's AMI. In exchange for a reasonable purchase price, if a homeowner decides to sell, the home re-sells at a price working families can continue to afford, while providing the seller with a return on his investment. For more informaion: www.pclt.org
Kathy PCLT —
If we look at Zillow by zip codes (which should eliminate any biases or inaccuracies realtor-types will complain about) and look at a 10 year history, we will see a *huge* increase in prices beginning about 2005 and continuing to approx Sep 2007.

Do the panelists believe this is accurate?

Should we expect a return to what a normal increase would have been (that is, take the ten year history and run a straight line through the timeline preceding 2005)?

If there is a disagreement w/ Zillow's assessment, what exactly is the disagreement?

Can the panel discuss home prices vs. rent prices? Do they expect home prices to drop to the extent that home ownership becomes more affordable than renting?

Also, can they discuss home prices vs. median income levels? For the past two years (at least) median income has been below traditional lending standards for the median home price.

Thanks!
chrism7834 —
Good morning,

While the plight of the housing industry in our region is indeed being felt by many of our builder clients, we are seeing a tremendous surge in the number of enrollments in our Earth Advantage residential green building program. We believe there is a confluence of factors contributing to this. The softer market has builders looking for ways to enhance the value proposition for their homes. Builders now have a little time to look into what building green is all about given the current spotlight on green building, climate change and the carbon discussions. The most common question from these newly signed builders is ?what do I have to do to integrate green into my homes to distinguish them from the houses down the street?? The RMLS addition of a green search feature (allows searches for Earth Advantage, ENERGY STAR, and LEED homes) coupled with the ?Green Incentive? mortgage program from Countrywide (1/8% off prime interest rate for the life of the mortgage offers savings of around $11,000 to $15,000) offer additional incentive for the homebuyer to consider buying a certified Earth Advantage home. We honestly feel that this dip in the housing market is actually serving to position green for when the industry picks up once more.

Kindly yours,

Sean Penrith
Executive Director
Earth Advantage Inc.
16280 SW Upper Boones Ferry Rd, Portland, OR 97224
[t] [1] (503) 968-7160 ext 13
[f] [1] (503) 968-6160
[c] [1] (503) 535-9668
[e] spenrith@earthadvantage.org
www.earthadvantage.org
"?The Premier Source for Sustainable Building & Climate Solutions?
OR WA ID CA HI New England

About Earth Advantage, Inc.
Earth Advantage, Inc., a 501(c)3 non-profit corporation, is a leader in the sustainable building industry and a premier source for sustainable building and climate solutions in the Pacific Northwest. At a minimum, Earth Advantage homes are designed to use 15 percent less energy than houses built to standard Oregon code practices. Earth Advantage homes adopt a philosophy of holistic sustainability and are accordingly certified for energy efficiency, healthier indoor air, resource efficiency and environmental responsibility. The organization has the ability to certify homes as Earth Advantage, ENERGY STAR, or LEED for Homes and also serves as a training and consulting resource. In 2007, Earth Advantage certified over 2,500 homes; totaling approximately 9,100 homes over the life of the program.



SeanPenrith —
Between loosing our house in 2004 (not related to this topic, our own fault), and having my annual income plummet (I used to pull 65k, now i'm lucky to get 42k out of a harder worked year) we can no longer afford a home.

I had to laugh at an interview the other day on OPB of some central Oregon talking head who felt that "affordable housing" meant $150 to 200k. Not at 11 bucks an hour, or even $15 on a 40 hour work week.

I've survived the debt crunch once, lost just about everything because we depended on too much income in an uncertain society... I almost lost my marriage over the financial hell it put us through. Prices now are so far out that I'll likely never have a house of my own again, because I'll never again accept the pyrrhic victory of home ownership at any cost.
tpohara —
I need advice. My wife and I have never owned a home and would like to. We have a VIDA account. (valley individual development account - we put in 1333.00 and they put in 4000.00 and used for down payment or closing costs for first time home buyers.) we make about 50k a year, and our credit is good. We are not sure if we should make a move and buy or cont renting for a while?

Thanks,
Justin in Salem
Justin in salem —
This is a great question. Please ask your panelists what should first time home buyers should do to take advantage of this market?
Potential Homebuyer —
I also want to add, that we are looking for a home around 100k (have you seen what you get for this price?), we are a family of 4, and are rent now is 650/ month. Basically, the question is should we wait till we can get more home for our money because the housing prices will drop?
Justin in salem —
$650/month is fairly low rent. If you bought at this point your monthly outgo for housing would at least double (and then add property tax to that). There's no rush to get into a house at this point: we'll likely see continuing declines for the next year or two. At that point we'll likely bounch around the bottom for a few more years. Historically, housing downturns tend to last for several years. Look at what happened in CA in the early 90's: prices peaked in 1990 and then fell and did not get back to that peak again until 97 or 98.

In the meantime live as frugally as you possibly can and save up as much money as possible for a downpayment.
skeptictank —
What is a Valley Individual Development Account? Is it some way that people who live outside of Portland can save up to buy a home? Why isn't it more widely available?
skeptictank —
I do not own any real estate, and so I am somewhat pleased by the recent trend TOWARD affordable housing. In my opinion, it is still NOWHERE NEAR affordable and has a ways to go before average Joes and Janes can afford a home. Where are the JOBS in the Portland area to sustain the ludicrous prices of homes? Also, I have no compassion for the GAMBLERS who stretched to buy 2nd and 3rd "vacation homes". These "home owners" don't deserve any bailout! Additionally, it is sooooo nice NOT to hear the typical boorish comments about "well, MY house has already appreciated 20% in the first 6 months, blah blah blah". The whinining I now hear is music to my ears compared to the boorish and greedy bragging of the past few years. Maybe finally we can once again have substantial discussions about economics, politics, and real life!
surferbrian —
What does this change in the Portland housing market have on condominiums?
petersonautumn —
Simply,the housing market has become part of the investment market due to banking deregulation, and so now is part of the unpredicatble, emotionally dictated, irrational, rollercoaster ride of the stock market. People want huge returns, and then whine about the declines.

The cause, like so many of our social and economic ills, is that the wealthiest one percent of population who control more money than the lowest 90%, run our government, and while they are insulated from the normal economic issues, absorb huge amounts of money from banking schemes they devise when the housing or stock market go up or down.

The peasants contimue to whine and vote for the foxes who are eating the chickens. This conversation is about symptoms, not the real causes. Peter LaGrande, Oregon
pete99 —
Some things should not be for profit industries, I.E. food, energy and especially housing. Every one in this country should be able to buy a home, and due to the greed of speculators that is no longer an option in this country, therefore I think the slump is a good thing, possibly it will put the greed of people like your guests in check, and will make it possible for working Americas to have the LOST American dream.
Luponsensay —
Question: is the scenario a healthy one, letting the market over-inflate a basic human right? Should housing be dictated by the market/profit, rather than need? Does not a rising price equate to higher overall inflation?
harryheck —
As was mentioned very briefly in passing, the price of the house is not what is being sold, the payment is what is being sold. Interest rates will play a much larger part of the price than anything else.
johnericw —
As a potential first time home buyer I see a big discrepancy. There is a cut off of about $43000 for a two person household to qualify for the first time home buyer programs, but if my husband and I wanted to live in Portland it may be impossible for us to find something we could afford. We currently live in Corvallis and can't afford to live here, much less in Portland. Some people have told us to buy in Albany, but the price of gas would probably offset the savings we would have by buying in Albany. It seems like first time home buyers are either forced to continue to rent or to live in a city that is poorer and commute because there is no other option. I know that lower house prices may hurt some people, but Oregon is not affordable right now and if we want more home owners the prices need to come down.
guidedoglover —
I sold our extra lot to a builder last year in May. This month the final plat was finished but now the realtor tells me that the builder may "walk" due to the financial shape of the market unless he gets a drastic price reduction. I think he is trying to use the news to his advantage.
What do you make of this situation (I also feel that he took an exceptionally long time to do his "due diligence" while he watched the market)
nesspace —
I have been waiting a year and a half for this. I sold our house in Beaverton during the peak in 2006, and my family moved closer to where I work. Where I used to have an hour commute, we now rent 3/4 mile from where I work. My rent is less than our mortgage was, and I use much, much less gas. It's a win/win situation.

I am not even going to consider buying a house until October, or perhaps one more year. Oregonians still have not gotten the message they overpaid during the boom and that it is over.

Anyone who bought their house in 2005-2007 can't sell their house for less than they paid, but they overpaid, so that is what has been keeping prices up. Something has to give. I am not going to pay for their mistake. If they want me to buy their house, they will simply have to lower their price.

They can't outwait their HELOCs and option loans. I can.


Luke T. —
Conservative Republicans De-Regulated the home loan industries and suckered people into home loans they could not afford, now the home buyers are losing their homes to foreclosures and Conservative Republicans can use their ?Bush Tax Cuts for the Wealthy? to buy up the foreclosed homes for cents on the dollar.

Conservative Republicans win both ways, they acquire the homes at fire sale prices and then because the people who lost everything still need someplace to live, the Conservative Republicans rent those homes back to the people made victims by the De-Regulation of the home loan industries.


Conservatism has always created poverty, privatizing the profits and then socializing the risks onto the public. As historical examples, let?s remember Reagans De-Regulation and subsequent looting of the US Savings & Loans and of course the Great Depression.

The public needs well crafted and enforced Regulations to protect themselves from the predations of Conservative Republicans.

De-Regulation hurts the realtors, the builders, the building craftsmen, building suppliers, material manufacturers, the homebuyers, and the honest bankers.

Tom D Ford —
Regarding the moving "close to work argument": Lots of people in the metro area work in the 'burbs: Intel and Nike are good examples.
skeptictank —
Its time for people to look at the issue of borrowing money. Housing prices would adjust to appropriate levels when people consider paying cash. I've paid cash for my property and own it outright. That said, I worked for everything I have without the help of family money. That said, while the price of a home has changed, up or down, the value of property has not changed since the 70s based on inflation. At the end of the day... its what your dollar will buy.
notnats —
Even if you have a credit rating of 630 and make 45,000 a year, it is hard for you to get a home loan these days. Financial Institutes are knuckling up and making it harder to get a home loan.
farnellnewton —
The average credit score in Oregon is 686. 630 is below average.

Luke T. —
I am a real estate broker and while housing prices needed to flatten due to affordability issues we must remember we are still the lowest priced market on the west coast especially in light of all the amenities we have. I am putting my house on the market on April 10th since I need a larger house for my family. If I don't get as much for my house as I would have that is fine I still have made great appreciation and the house I will be buying will have had taken more of a hit then I will have. The national media has put fear into our market - we have a very low foreclosure rate compared to the rest of the market.
opboregon —
"lowest priced market on the west coast"

However, you also have to consider that job opportunities are not as good in Portland as they are in other West Coast cities like Seattle or San Francisco. We don't have the number of high paying or even family wage jobs that Seattle has, for example. Seattle has a much more diverse economy than Portland has. Remember, Oregon was one of the last states to come out of the last recession.
skeptictank —
The Realtor's argument is a strawman: We're not talking about one person deciding to lower the price of their home to make prices more affordable. We're talking about a whole market falling in price. So while my house is probably worth about $20K less than it was last summer, when I have to buy another comparable home it is also probably worth about $20k less as well.
skeptictank —
I was a little shocked by what Bill Conerly said a few moments ago:

"...20% declines [in the housing market] - heck, the stock market does this all the time..."

I think the point is that the nation is currently seeing the largest nationwide housing price declines in history - as you may remember as recently as a few months ago, the going mentality was that "housing prices NEVER go down"

Comparing a market that has traditionally been considered "stable and always a great investment" to the historically volatile stock market seems a little.. strange.

A shameless plug to great discussion on the Portland housing market - with great graphs of the Case-Shiller numbers in discussion today:
http://portlandhousing.blogspot.com/
pdxhousingbug —
I am an architectural designer and I have no work whatsoever and in grave danger of losing my home. There is tons of work out there, or least those trying to get projects off the ground. The problem lies directly with the banks. The government bails them out and they sit on the money, refusing to lend it out, or lending at a much higher rate. BANKS WILL BE THE DESTRUCTION OF THIS COUNTRY...
KenDost —
FYI folks, we're going to start moving away from the pure discussion of housing prices toward a larger discussion about the ripple effects of the slowing housing market. Where are you starting to see those effects?
David Miller —
Did you have to pollute this discussion with the NAR cheerleaders? Why didn't you just invite former NAR "economist" David Lereah. He could have talked about his 2006 book:

"Why the Real Estate Boom Will Not Bust - And How You Can Profit from It: How to Build Wealth in Today's Expanding Real Estate Market"

number-six —
I'm a homeowner moving out of the country. Becasue of the housing price drop I have decided to rent my house rather then dealling with the stress of selling. I was very worrried that I would not be able to get back what I paid for the house at the peak of the market. I'm lucky I can make this choice to rent vs selling right now and I'll see where prices are in a couple years. I don't need to make the high % trate hat maybe I once would have but ideally not lose money.
BristolBeau —
As someone who has lived in Portland for 60 years, I am concerned about sustainability, overpopulation, quality of life for all life forms, not just humans, and most specifically rich humans. There are thousands of new housing units, (apartments and condos) in development and sitting empty in our area. There are many, many "Mcmansions" in the woods sitting empty too. Developers are only looking to make enormous profits and they don't consider quality of life issues like overcrowding everywhere ones goes from city parks to once quiet stretches of rural road. There are too many people in Portland already and our water and air quality suffer, there's noplace safe for children to play in a natural setting anymore, there's a loss of small local farms and wildlife. As global warming continues and people come here to escape flooding and water depletion or war in other places, Portland becomes grittier and more wear worn. We need leadership outside the concerns of the Chamber of Commerce. Sustainability needs to be our primary concern.
oldcreative —
Thank you for your response. As a homeowner, I certainly appreciate the hardship that this downturn is creating - especially for those with debt who have lost their jobs, but I can't help but hear about slowing housing activity ~ especially starts ~ with a fair amount of relief for the health of our planet and its ecosystems. Our great task now is to become prosperous again without inflicting such vast destruction through extraction and expansion. We can be small, efficient, renewable, and prosperous. We must redefine wealth in order to ensure the continued coexistence of humans and the rest of life on earth.
leander37 —
Debt is not wealth. Debt requires income to service it. Having more "assets" does not mean you can service your debt if you lose your job, for example.
skeptictank —
Mr. Dunn mentions that we had very little subprime loans in Oregon - however, in the PDX area in 2006 over 30% of loans made were Interest Only loans. While it's true that these loans are not subprime, they are still dangerous loans in which the borrower can end up owing more on the home every month. Interest only and pay option ARM loans are not subprime loans, they're Alt-A loans (between suprime and prime).
skeptictank —
As well as option loans. Pick-A-Pay. If you have a pick-a-payment loan, and have been making the minimum payments, then you actually owe more than you originally borrowed every time you make that minimum payment. Your principle is rising.

Or if you bought a $320,000 house with an option loan whereby you pay $300.00 a month for two years, and then the loan resets. Surprise! After that two year period, you will owe something in the neighborhood of $360,000, and your payments could jump to $2300 a month.

Now what kind of fool thinks they can get away with $300 a month for a $320,000 house? Yet, plenty of people went for it. That's as much the buyer's fault as the broker's.



Luke T. —
I recently saw a scary statistic about pay option ARMs: over 70% of borrowers that have them pay the minimum payment every month.
skeptictank —
Your guest stated that we have more assets, but I question the long term value of the assets he is speaking of. Furniture and cars are not considered long term investments.

As an insurance adjustor, I have also seen a startling decrease in the quality of new construction. I think that the housing boom has encouraged this kind of shoddy construction because people are not thinking about their house as a home, but as an investment. Realtors look at houses in terms of square footage and number of rooms and price based on these items alone, encouraging overbuilding and poor quality construction.
portlander34 —
The other thing to consider about these "assets" is that many of them were not really worth what people thought they were. Houses are a good example: they got overpriced due to a frenzy and various Wall St. "financial innovations" - now we're seeing home prices come back to more reasonable valuations. You also have to wonder about stock valuations at this point too. Are they valued based on false assumptions about the economy?

Still, even if we have more assets (stuff) does that really help us? In the 70's it was fairly easy for a one-breadwinner household to buy a home - my parents did it. Now it's just about impossible. Are we better off now because we have more stuff?
skeptictank —
We bought our home in the Seattle area in 1969. Within a few months Boeing did a major layoff and someone posted the sign, "Will the last one out of town turn out the lights." I lost my job at Boeing. Housing prices in the are took a significant decline. It was a tight struggle for a few months. We paid $30,000 for our house. Over the years we saw prices go up and then recede a bit over the next 37 years. We sold our home in 2006 for $650,000. We had done some updating on our home so some of that increase in value reflects that in investment. There were two homes on the same street as ours whose owners had not done any updating since 1969. Based on the sales price of those homes our home most likely would have sold for $500,000 with out any of our update. It was definitely worth hanging in there through the rocky first year.
averycannon —
I agree. If you can afford your mortgage payment, it is best to just ride this out. There are parts of the country that will take a very long time before homeowners see their equity return. But the Portland area probably will bounce back much sooner.
Luke T. —
what people are failing to see is that those in the sub-prime loans can indeed afford a loan at that lower rate, whatever that may be. However, as the loan interest has increased and they have not been able to meet the higher payment, their credit goes bad, and they can not refi... that is the problem, the banks will not loan to them, and that is not right as it is the higher interest that has made it so.
KenDost —
we moved back to Portland this summer. Last month, after having our house on the market in Arizona for almost a year, we finally had an accepted offer. a week later, fannie mae and freddie mac declared all of arizona a "declining market" which meant that even people with good credit needed to come up with 10% down rather than the 5% normally needed for a "conforming loan". Fortunately FHA changed their loan limit a couple days later otherwise the deal would have fallen through. as it is, it closed two weeks late, but at least it closed!
clint c —
This conversation is based on the S&P report. The S&P Case-Schiller index Home Price Indices are calculated monthly and published with a two month lag. It is nothing new that winter is our slowest time for sales with fewer buyers looking and fewer sellers selling. In winter ?06/?07:

December 2006 S&P was 180.27
January 2007 S&P was 179.79
February 2007 S&P was 179.90
March 2007 S&P was 181.72

If anything else, this report shows the historical seasonal trends we find in the local market place.

S&P, put together by people looking at the national market from who knows where, is not the end all of market indicators.

The Sustainable Broker,
Andrew
Sustainable Broker —
I work for a local Owner/Developer. We have reduced the prices on our properties significantly and improved them - but we still can not find the buyers. What can be done to find buyers and what kind of financial help can we offer them to help jump-start the local housing market?
Potential Homebuyer —
My guess is that when you say you have "reduced the prices", you have lowered them to 2006 prices. That is still too high.

Also, as a person who is in the market for a house, I am not really interested in the newer homes. We are renting a home built in 2005, and it is a piece of crap. And it is about ten feet from the house next door. The front lawn is the size of a Persian rug. I have three kids and a dog. I am not interested in living in that kind of house permanently. At all.

Luke T. —
http://portlandhousing.blogspot.com/
http://portlandrealestateoutsider.blogspot.com/
skeptictank —
I heartily recommend that people join their local Credit Union as members. As members you pay one to two percent lower interest rates on every financial product, including credit cards. And since you are an owner of your CU it is in your interest to only loan to realistic homebuyers, including hopefully, yourself.
Tom D Ford —
Problem is that Credit Union mortgage rates generally aren't very competitive.
skeptictank —
Does anyone else feel that the guests on today's show made the direction of the discussion a bit contrived. I guess their combined interest is in the housing market staying inflated, but it was reminiscent of George Bush imploring Americans to travel, spend money, etc after Sep 11. Not to compare the housing downturn with terrorism, but both seem to be unable to come to grips that things have changed.
quincey —

Comments are now closed.

Thanks to our Sponsor:
become a sponsor
Web Analytics